The interpretation of the clause of sale without legal warranty “at the buyer's own risk” has evolved

Waiving the protection of the legal warranty completely poses major risks. 

A recent decision has changed the interpretation of the clause of sale without legal warranty “at the buyer's own risk,” highlighting the serious consequences of this waiver on the liability of sellers to the detriment of the protection of buyers’ rights. The Tremblay v. Immeubles Perron ltée^[1] case brought before the Québec Court of Appeal underlines the importance of transparency and diligence in such real estate transactions.

Blais decision upheld

The Tremblay v. Immeubles Perron ltée decision confirms the legal validity of another landmark decision in this area–Blais v. Laforce^[2] ruling in 2022. This ruling had already advanced the interpretation of the legal warranty exclusion clause “at the buyer's own risk.” The principles can be summarized as follows:

• The total legal warranty exclusion clause is a serious warning to the buyer that the property is being sold without any warranty, despite the defects that may affect it
• This clause makes it possible to impute presumed knowledge of the existence of the defects to the buyer
• In the absence of fraud on the part of the seller, this clause clearly expresses the buyer's intention to assume the risk related to latent defects and not to avoid the “risk” associated with the purchase
• A buyer who purchases with the total legal warranty exclusion will not subsequently be able to take action against previous owners, even if those previous owners had sold with the legal warranty

• ·    The parties to a real estate sale can draft a clause reflecting their common intention to simply exclude the immediate seller's legal warranty of quality while retaining rights against previous sellers.

Interpretation of the sale “at the buyer's own risk” in the event the seller is aware of the defect

The Court of Appeal considered the appellant's argument that he could benefit from the title warranty despite the inclusion of a total legal warranty exclusion clause. The buyer argued that the seller was aware of the defect in the title to the property and did not disclose it voluntarily in order to deceive him.

The Court dismissed this argument, clarifying that, under Article 1733 of the Civil Code of Québec, a non-professional seller may exclude his liability for known defects that he does not disclose to the buyer, except in the case of fraud. Here, fraud implies a deliberate intention to deceive the buyer in order to conclude the transaction.

A seller's mere silence about a known defect no longer constitutes fraud in a sale “at the buyer's own risk.” This complicates things for buyers because to successfully make a claim against the seller in this type of transaction, the buyer must now prove not only that the seller was aware of the defect, but also that the seller has intentionally deceived him by a lie, half-truth or fraud, which would have influenced his decision to consent to the purchase of the property. In short, the mere fact that a seller does not disclose a defect is no longer sufficient to establish fraud in a sale “at the buyer's own risk.”

Consequences for real estate brokers and parties involved in a transaction 

To navigate through this complex legal framework, parties need to be well informed and advised by their real estate broker. This will enable them to conclude a transaction in full knowledge of the facts, with a full understanding of their rights and responsibilities.

For buyers:

• It is crucial to look further into the seller's declarations and ask relevant questions to encourage the seller to disclose the defects. In theory, a seller who is asked questions should put an end to his silence and declare the known defects.
• Buyers need to be particularly vigilant in “at the buyer's own risk” transactions, as proving fraud is becoming more complex. In this regard, it is important to reiterate that all the seller's communications and declarations must be well documented.
• The protection provided by the Real Estate Brokerage Act remains essential, especially the brokers' obligation to discover and inform the parties of adverse factors. Conducting a thorough due diligence and not hesitating to hire experts to inspect the property before purchase is essential in this type of transaction to avoid unpleasant surprises.
• Depending on the circumstances, buyers should seriously consider alternatives to the purchase “at the buyer's own risk,” such as using a standard clause (see 3.5 to 3.5.2) or a customized partial warranty exclusion clause. A specialized lawyer should be consulted to understand the implications of the various legal warranty exclusion clauses.

For sellers:

• Sellers may be tempted to use total legal warranty exclusion clauses to protect themselves, especially if they are aware of defects that they prefer not to disclose. However, transparency about known defects helps avoid potential disputes.
• The seller's broker still has a duty to take steps to discover factors that could adversely affect the parties or the object of a transaction. He must also inform all parties to a transaction objectively, without exaggeration, concealment or misrepresentation.
• Sellers must be aware that this exclusion does not apply to certain damages, such as bodily or moral injury caused to others. For example, a buyer may claim damages for health problems caused by mould hidden by the seller.
• The total warranty exclusion clause may also lead to a reduction in the sale price because a prudent buyer will want to reduce his risk by taking into account the potential loss of value due to a defect discovered at a later date.
• The total warranty exclusion clause (standard clause 1.3.3) should only be required in certain exceptional situations, such as a succession, a repossession, a building to be demolished, or a change of use. In other cases, sellers should opt for a clause that partially excludes the legal warranty (for example, standard clause 1.3.1 – Exclusion clause specific to the immediate seller or 1.3.2 – Exclusion clause on certain components of the immovable), with the help of brokers and lawyers to ensure that they comply with current legislation.